Dimensions april 2016

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© Dhruva Advisors LLP. All rights reserved.
DIMENSIONS - April 2016
13 May 2016
SERVICE TAX
Case Laws
Space booked on ships by exporter and freight
received on principal-to-principal basis not a
taxable service
The appellant handles the logistics of exporters and
for delivery to the consignee and is registered as a
‘multimodal transport operator' with the Director
General of Shipping. The appellant entered into a
contract with shipping lines through a steamer
agent for the carriage of cargo by sea. Ocean
freight was paid to the steamer agent acting on
behalf of the shipping lines. The appellant collected
ocean freight from the exporter. The difference
between the two was recorded as “surplus ocean
freight” in the books of account. During the audit
conducted by the department, the books were
scrutinised and the surplus ocean freight was
considered to be taxable under the category
“Business Auxiliary Services” as “promotion or
marketing of the service of the client”. The
appellant contended that the activity conducted
was a trading activity i.e. purchase and sale of slots
for ocean transport of container to the exporter.
These slots were pre-booked by the appellant and
were sold to the exporter on demand, for which
consideration was received by the appellant. Any
un-sold space in the vessel was a cost to the
appellant. Further, the appellant took responsibility
for the safety of goods and issued a document
entitled the ‘multi-modal bill of lading’.
The Tribunal held that the service provided by the
appellant did not amount to service falling under
the category “Business Auxiliary Services” as the
activity provided by the appellant was on a
principal-to-principal basis and freight charges were
the consideration for space procured. Further, the
payment of freight to shipping lines and the
collection of freight from exporter were two
independent transactions, and the notional surplus
arose from the activity of the purchase and sale of

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space and not from the appellant acting as an
agent.
Dhruva Comments:
This judgement gives relief to the freight carrier,
which receives freight on the sale of slots to the
exporter in its his own capacity i.e. on a principal-
to-principal basis. The freight carrier issues a bill of
lading, in its own name, for taking the goods
outside India, which makes it clear that there is no
intention to market/promote the goods of the
exporter or any such related service. To qualify the
service as “Business Auxiliary Services”, there should
be a tri-partite transaction, whereas in the present
case there are two independent transactions
involving two parties each. The confusion in the
present case arose as the difference between
freight collected and freight paid was recorded in
the books as “ocean freight surplus”. Had the books
of accounts disclosed freight income and freight
expenditure separately in the profit and loss
account, maybe the issue/confusion would not have
arisen in the first place.
Greenwich Meridian Logistics (India) Pvt. Ltd. vs
Commissioner of Service Tax Mumbai
[2016 (4) TMI 547-CESTAT Mumbai]
Distribution of credit on pro rata basis not
applicable prior to 2012
The respondent operated three units under
common management, in Jaipur, Manesar and
Niwai, of which Jaipur was their Head Office (‘HO’).
They were engaged in the manufacture of ball
bearings and axle boxes, falling under Chapters 84
and 86 of the Central Excise Tariff Act, 1985, at all
three of their units. The respondent claimed
CENVAT credit of Service Tax paid on common
input service expenses such as selling commission,
royalty, consultancy and professional, banking
charges, audit fees, Annual Maintenance charges
etc. The invoices of the input services were
addressed to their HO and the HO, then distributed
the credits to their other units in terms of Rule 7 of
CENVAT Credit Rules, 2004 and the recipient units
utilized them to discharge Excise Duty/Service Tax
liabilities.
The question before the Rajasthan High Court was
whether such common credits can be allowed to be
distributed to other units without pro rata
distribution.
The Rajasthan High Court held that the three units
of the respondents had been proved to have
common management and the department could
not prove otherwise. The company, having a
common management, was entitled to distribute
the credit availed by the HO, in terms of Rule 7 read
with Rule 2(m) of the CENVAT Credit Rules, 2004,
subject to the conditions laid down in Rule 7. With
regard to the pro rata distribution of credit, the
High Court held that, as clause (d) of Rule 7,
prescribing the pro rata distribution of credit, was
inserted much later than the relevant time, such a
provision could not be applied retrospectively in
the case of the respondents.
Dhruva Comments:
The Rajasthan High Court in this case concluded
that, during the relevant period, the restriction of
distributing credit on a pro rata basis did not exist,
and therefore credits could be distributed to any
unit subject only to the two conditions that existed
then, i.e. firstly, the credit distributed should not
exceed the amount of Service Tax paid and
secondly, credit for Service Tax pertaining to
services used exclusively for the manufacture of
exempted goods or for the provision of exempted
services should not distributed. The taxpayer could
distribute the credit to any/all the units in such
proportion as they deemed necessary. It was only
post-2012, that the methodology for the pro rata
distribution of credit was introduced and therefore
this could not be applied for credits distributed
prior to 2012.
Commissioner Central Excise Commissionrate,
Jaipur vs National Engineering Industries Ltd.
[2016 (5) TMI 12 – RAJASHTHAN HIGH COURT]

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VALUE ADDED TAX
Case Laws
Supplies to DMRCL under works contract
qualifies as sale in the course of import and
inter-state trade so as to qualify for exemption
from Delhi VAT
ABB Ltd. (the assessee) had entered into a works
contract with Delhi Metro Railway Corporation Ltd.
(DMRCL) for supply, installation, testing and
commissioning of traction electrification, power
supply, power distribution and SCADA system in
Delhi. For execution of the said works contract, the
assessee made imports as well as inter-state
purchases.
The assessee claimed exemption under the
provisions of Delhi VAT on its deemed sale, treating
it as a sale in the course of imports and inter-state
trade. The same was, however, disallowed by the
assessing authorities as well as the Tribunal by
recording a finding that there was no link between
DMRCL and the supplier of goods imported by
assessee and on account of lack of privity of
contract. Aggrieved, the assessee approached the
High Court (HC), wherein all the relevant facts,
contract terms, conditions and stipulations were
analysed in detail.
The HC observed that the import of goods by the
assessee was strictly as per the requirements and
specifications set out by DMRCL in the contract,
suppliers were identified by DMRCL, and that
DMRCL had the right of testing, inspection and
rejection of such goods and concluded that the
imports by the assessee were occasioned by
contract of the assessee with DMRCL. HC also relied
on the Constitution Bench’s decision of Apex Court
in the case of K.G. Khosla & Co. vs. Deputy
Commissioner of Commercial Taxes, Madras
[(1966) 3 SCR 352]. Thus, the exemption of sale in
the course of imports was allowed. Similarly, with
respect to inter-state sales, HC noted that the
contract clearly envisaged inter-state movement of
goods and that DMRCL was fully aware of such
movement and held such sales as inter-state sales
falling under Section 3(a) of CST Act.
Against the HC order, Revenue filed an appeal
before the Supreme Court (SC) contesting that the
HC’s order is based on erroneous interpretation of
the Apex Court decision in the case of K.G. Khosla
supra. It further held that the current case is
squarely covered by the subsequent Constitution
Bench decision of Apex Court in the case of Binani
Bros (P) Ltd vs. Union of India & Ors. [1974 1 SCC
459], where the claim of sales in the course of
import was disallowed by the court. The SC noted
that the facts of the current case were different
from the Binani Bros case, as in the instant case
there was a right of rejection by DMRCL which was
absent in the case of Binani Bros. Further, the SC
agreed with the reasonings provided by the HC and
held that the decision of K.G. Khosla is squarely
applicable to the present case. The SC also
concurred with the view of the HC with regard to
inter-state sales which was pronounced after
considering various SC decisions on the matter.
Dhruva Comments:
This decision reiterates the principles laid down by
the Hon’ble Supreme Court in its various earlier
judgements in relation to sale in the course of
import and inter-state sales under Section 3(a) of
the CST Act.
Commissioner, Delhi Value Added Tax vs M/s
ABB Ltd. [2016-TIOL-41-SC-VAT]
Assessee claiming input tax credit not obliged to
take any responsibility for his seller’s valid
registration
Maple Exports Pvt Ltd. (assessee), an exporter, had
applied for refund of its input tax credit in excess of
Rs. 1 crore. The assessee claimed to have made
purchases from two registered dealers, viz. Eco
Tanners and Leather Enterprises. However, the claim
of the assessee was rejected in terms of Section
22(12)(db) of the West Bengal Value Added Tax Act,
2003 on the grounds that dealers from whom

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goods were purchased by Eco Tanners were non-
existent, while there was no dealer called Leather
Enterprises at the address indicated on its tax
invoice which was submitted by the assessee.
Aggrieved, the assessee filed a writ petition
challenging the validity of the impugned section,
arguing that it obliges a dealer to do something
beyond his control.
The HC observed that as on date both the dealers
appeared as existing registered dealers on the
website of the Directorate of Commercial Taxes
under the Department of Finance, Government of
West Bengal and that the said dealers had also filed
returns up to June 2015. Further, the HC also stated
that the impugned section does not cast
responsibility on the dealer to check the
authenticity of the purchases made by its seller.
Accordingly, the writ petition was allowed and the
matter was remanded for fresh consideration. As
regards the question of constitutional validity of
Section 22(12)(db), HC left the issue open for future,
stating that the vires of the section are not required
to be questioned for the purpose of the present
adjudication.
Maple Exports Pvt Ltd. vs Additional
Commissioner, Sales Taxes Central Refund Unit
& Ors [2016-TIOL-538-HC-KOL-VAT]
TFT / LCD / LED monitors classifiable as
‘Monitors’ under Entry 41A to Schedule III of
Delhi VAT;
Default assessment notices issued are invalid
when returns filed are complete and correct
Samsung India Electronics Pvt Ltd. (Samsung/
Company), engaged in sale of electronic goods, IT
products etc., had sold TFT / LCD / LED monitors @
5% VAT by classifying them in Entry 41A of
Schedule III. Audit proceedings of the Company
were conducted and thereafter a letter was issued
to the Company seeking certain details of sales of
TFT / LCD / LED monitors. Subsequently, 12 default
assessment notices were issued to Samsung for
recovery of differential tax and interest, by alleging
that the said items are covered under residuary
entry and not under Schedule III and as such are
liable to tax @ 12.5%.
The Company filed a writ petition against the
impugned notices, wherein the main contentions of
the Company were as follows:
 Default assessment notices (10 out of 12) were
time-barred as the returns filed by Company
were originally accepted by the department;
 Audit proceedings conducted on the Company
did not point out any discrepancies;
 The Company is not bound by an order of
determination of question sought by another
assessee;
 No show cause notice was issued to the
Company to seek explanation why TFT / LCD /
LED monitors should not be taxed @ 12.5%;
 In case of multiple classification, interpretation
that favours the assessee should be preferred.
Upon considering submissions of both parties, the
HC made the following observations:
 Once a return is filed within the prescribed
date and complies with all requirements, it is
deemed to have been assessed by the
Commissioner on such date and is treated as a
notice of assessment as per Section 31(1);
 Since, Samsung had filed all returns in
compliance with the provisions, the same
would amount to assessment by the
Commissioner;
 In such case, the time limit of 4 years would
apply from the date of filing of returns and not
from the end of the financial year. Accordingly,
notices for April 2009 – January 2010 were held
as time-barred;
 Default assessment notices cannot be issued in
cases where returns are filed and are compliant
in all respects, as already held in the case of
H.M. Industries v. Commissioner of Value
Added Tax [2014-TIOL-1877-HC-DEL-VAT];

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 HC reiterated the principle that, if in
classification of goods two views are possible,
the one favouring the assessee has to be
preferred. Since the department is unable to
provide any reason for not classifying the
impugned items under Entry 41A Sr. no. 3 to
Schedule III i.e. as monitors, they cannot be
classified under the residual category to attract
higher tax rate. The item ‘monitor’ is wide
enough to cover all types of monitors unless
specifically excluded;
 The determination order in the case of other
assessees is not binding on the Company.
Samsung India Electronics Pvt Ltd vs
Government of NCT of Delhi and Ors. [2016-
TIOL-725-HC-DEL-VAT]
Notifications & Circulars
Maharashtra
Introduction of Amnesty scheme
Maharashtra Settlement of Arrears in Disputes Act,
2016 has been introduced to unlock the arrears in
dispute pending at various appellate forums under
the following legislations:
 Maharashtra Value Added Tax Act, 2002;
 Central Sales Tax Act, 1956;
 Maharashtra Tax on Entry of Motor Vehicles
into Local Areas Act, 1987;
 Maharashtra Tax on the Entry of Goods into
Local Areas Act, 2002;
 Maharashtra Tax on Luxuries Act, 1987;
 Maharashtra Purchase Tax on Sugarcane Act,
1962;
 Maharashtra State Tax on Professions, Trades,
Callings and Employments Act, 1975;
 Bombay Sales of Motor Spirit Taxation Act,
1958 (since repealed);
 Bombay Sales Tax Act, 1959 (since repealed);
 Maharashtra Sales Tax on the Transfer of the
Right to use any Goods for any Purpose Act,
1985 (since repealed);
 Maharashtra Sales Tax on the Transfer of
Property in Goods involved in the Execution of
Works Contract (Re-enacted) Act, 1989 (since
repealed).
Major highlights of the scheme are as follows:
 The scheme is applicable in respect of
statutory orders pertaining to the period up to
31 March 2012, where an appeal has been filed
and stay has been granted before 30
September 2016;
 Application in Form-I under the scheme for
settlement of arrears is to be made up to 30
September 2016 and should be accompanied
by proof of payment required to be made
under the scheme;
 The applicant also needs to pay the
undisputed amount in respect of the statutory
order for which the waiver is sought;
 For availing benefit of the scheme, an appeal
pending before an Appellate authority,
Tribunal or court needs to be withdrawn on or
before 30 September 2016;
 The Amnesty scheme can be availed even for
some issues pending in appeal and not all
issues in an appeal;
 There will be no refund of any amount in
dispute paid prior to the commencement of
this Act or paid under this Act;
 Relief to be granted under the Amnesty
scheme is as below:
Particulars Amount to be
paid under the
scheme
Waiver
granted
Tax period
prior to 1
April 2005
Entire amount of
disputed tax
Entire
interest and
penalty
Tax period
from 1 April
2005 to 31
March 2012
Entire tax
disputed and 25%
of disputed
interest after
reducing part
payment made at
the time of filing
of appeal
Balance
interest and
entire
penalty

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 An order of rejection of application due to
defects is appealable before the Deputy
Commissioner / Additional Commissioner
within 60 days of receipt of the order;
 However, no appeal is allowed against an
order of settlement;
 Settlement order passed is open for review by
the Commissioner within 12 months from the
date of the service of order.
Maharashtra Settlement of Arrears in Disputes
Act, 2016 (Maharashtra Act No. XVI of 2016)
Circular on Maharashtra Settlement of Arrears in
Disputes Act, 2016
A detailed circular has also been issued to explain
the salient features and procedural aspects of the
Maharashtra Settlement of Arrears in Disputes Act,
2016.
Trade Circular No. 10T of 2016 dated 3 May
2016
Modification of CST return
Changes have been made in the CST return Form
III(E).
Notification no. CST. 1516/CR-45/Taxation-1.-
dated 22 April 2016
FAQs on return filing under new automation
system
A list of 59 FAQs has been issued by Maharashtra
VAT department in relation to filing of returns
under the new automation system.
http://mahavat.gov.in/Mahavat/HomeControlle
r?value=/MyFold/WHATS%20NEW/whatsnew.ht
ml
Chhattisgarh
Reduction in the VAT rate to 5% for following
products for the period 1 April 2016 to 31 March
2017:
 Ceramic and vitrified tile
 Weighing equipment
 Machinery and equipment used in the
execution of civil works contracts and road
construction, such as:
 All type of cranes
 All types of excavators & rock breakers
 Batching plant (concrete mixture plant)
 Compressor and driving rig
 Concrete pumps
 Road rollers
 Soil compactors
 Concrete mixer machines, etc.
Notification F-10-25/2016/CT/V (52) dated 21
April 2016
Exemption from VAT, CST and Entry tax
 Exemption from whole of VAT, CST and Entry
tax is granted to dealers establishing a unit in
the state under the Electronics, IT and ITeS
Investment Policy of Chhattisgarh, 2014–19;
 Such exemption is granted for a period of 5
years in case of VAT and 10 years in case of
CST / Entry tax from the date of
commencement of commercial production or
up to the date of introduction of GST,
whichever is earlier.
Notification nos. F-10-14/2016/CT/V (48), (49)
and (50) dated 13 April 2016
Himachal Pradesh
Reduction in penalty in following cases:
 False claim of input tax credit in returns which
a dealer is not entitled to – penalty reduced
from twice the amount of input credit to an
amount equal to the input credit;

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 Incorrect claim of input tax credit in returns –
penalty reduced from 50% of the amount of
input credit to 25% of the amount of input
credit.
Himachal Pradesh Value Added Tax
(Amendment) Bill, 2016 (Bill No. 7 of 2016)
CENTRAL EXCISE
Case Laws
Installation of new plant and machinery in
existing plot of land does not thwart benefit of
area-based exemption
The applicant was enjoying area-based Central
Excise Duty exemption under Notification No.
50/2003 C.E. dated 10 June 2003 (the ‘2003
Notification’). The applicant proposed substantial
expansion by installing additional plant and
machinery and constructing new building (the
‘proposed unit’/‘proposed expansion’). Further, they
would obtain a separate factory license, E.S.I. and
P.F. Code and would separate the existing unit from
the proposed unit by putting a wall in between the
two and maintain a separate series of invoices.
However, the excise return and service tax return for
the units would be filed in a consolidated manner
as the substantial expansion was proposed to take
place on the same plot. Advance ruling was sought
as to whether the proposed expansion was eligible
for area-based exemption under the 2003
Notification.
The Revenue averred that the proposed unit would
result in an altogether different unit from the
existing one and hence could not be termed as an
expansion. Further, the proposed unit would come
into existence after the sun-set clause and would
not be eligible to enjoy the benefit of the
exemption.
The applicant placed reliance on Circular No.
939/29/2010-CX dated 22 December 2010, which
clarifies that the 2003 Notification does not restrict
exemption to an addition/modification in the plant
and machinery or to the production of new
products by eligible units after the cut-off date and
during the exemption period. Further, reliance was
placed on the subsequent Circular No.
960/03/2012-CX dated 17 February 2012, which
clarifies that a unit enjoying exemption under the
2003 Notification can even expand by acquiring a
plot of land adjacent to its existing premises and
installing new plant/machinery, and the exemption
will be available on such increased production.
Accordingly, the applicant averred that where the
benefit of the exemption could be extended to an
expansion within an adjacent plot of land, then
similar expansion within the existing unit ought to
be within the purview of the 2003 Notification.
The Authority of Advance Ruling (‘AAR’) dispelled
the Revenue’s contention and subscribed to the
submission of the applicant that the proposed unit
fell within the realm of the existing unit on the basis
of the clarification contained in Circular No.
960/03/2012-CX dated 17 February 2012. Further,
the AAR observed that the production in the
existing unit commenced prior to the cut-off date.
Hence, in light of the Circular dated 17 February
2012, the applicant was eligible for exemption.
The AAR determined that it would be a retrograde
step and not in consonance with the Governmental
policy not to allow the existing unit to grow in the
existing plot of land, by the installation of new plant
and machinery. Accordingly, the benefit of the 2003
Notification was held to be available to goods
manufactured from the proposed expansion.
Dhruva Comments:
This ruling provides relief to assessees who seek to
extend the benefit of area-based exemption under
the 2003 Notification, for the residual period, by
expanding production capacities for new products
within the existing unit. It is relevant to note that an
advance ruling is binding only on the
applicant/department in the particular case
concerned, but nonetheless has persuasive value

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with respect to similar activities carried on by other
assessees.
M/s LAKHANI FOOTWEAR PVT LTD vs
COMMISSIONER OF CUSTOMS (CE&ST)
DEHRADUN [2016-TIOL-10-ARA-CX]
Supplies to intermediary contractor executing
projects funded by International Organization
are eligible for Central Excise Duty exemption
The assessee was engaged in the business of
manufacturing and selling computers. The assessee
had cleared personal computers manufactured by it
for a project known as the ‘Second Health Systems
Development Project’ for implementation by the
Government of West Bengal.
The assessee had cleared such goods claiming
exemption from Central Excise Duty under
Notification No. 108/95-CE dated 28 August 1995
(the ‘1995 Notification’).
The Revenue authorities objected to the exemption
claimed by the assessee and the matter traversed to
the Hon’ble Madras High Court. The appeal was
admitted by the court on the following substantial
questions of law:
 Whether it is right to grant exemption, when
the goods were not supplied either to the
project or to the International Organization
funding the project but were supplied to the
individual contractors who then owned these
goods and were not in any way under
obligation to the "Project Authority" to use the
goods in the execution of the project;
 When the certificates were produced by the
second respondent after clearance of the
goods, which is contrary to the conditions of
the 1995 Notification, whether the first
respondent was correct in holding that the
Revenue had no case to argue that the
appellants did not fulfill the substantive
conditions of the 1995 Notification?
The Hon’ble High Court observed that the
exemption under the 1995 Notification was divided
into limbs:
a. when the goods are supplied to the United
Nations or an International Organization for
their official use; or
b. when goods are supplied to projects financed
by the United Nations or an International
Organization and approved by the Government
of India.
The Revenue sought to exclude the assessee from
the exemption, by inserting the word ‘directly’ after
the word ‘supplied’ in respect of the second limb of
the exemption.
The Hon’ble High Court averred that it was
completely illogical to think, even in respect of the
cases covered under the second limb of the
exemption, that the supply should have been made
‘directly’. The Hon’ble High Court further stated that
no addition or deletion of any expression, either by
the Department or by the assessee, was possible
when it came to the interpretation of exemption
notifications. Accordingly, it was held that the
assessee was eligible for the exemption under the
1995 Notification.
The second question of law was also answered
against the Revenue and in favour of the assessee,
on the basis of two lines of reasoning. Firstly, the
subject issue had been decided in favour of the
assessee by the original adjudicating authority, and
this had not been reversed by the subordinate
appellate forums. Secondly, the Hon’ble High Court
placed reliance on the Supreme Court decision in
the case of Commissioner of Customs vs Tullow
India Operations Limited [2005 (189) ELT 401
(SC)], in which it was held that even the production
of certificates post facto was permissible in law.
Dhruva Comments:
The decision affirms a settled position in law that
words that do not exist within an exemption
notification cannot be deemed to be embedded so
as to deny the benefit of a notification to an
assessee. This decision also affirms the view that the
assessee should not be deprived of any benefit that

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is otherwise available merely on procedural
grounds.
Commissioner of Central Excise, Pondicherry
Commissionerate vs 1. Customs Excise And
Service Tax Appellate Tribunal, Chennai, 2. M/s.
IBM India Limited [TS-134-HC-2016(MAD)-EXC]
Interest to be levied according to provisions in
effect at the time of issuance of show cause
notice (‘SCN’)
The issue in the given case pertains to Orders in
Original (‘O-i-O’) confirming demands for Central
Excise Duty with or without demand for interest on
such Excise Duty. The O-i-O pertained to SCNs on
or prior to 11 May 2011.
The assessee had filed appeals against the said
orders, which were decided on by the Tribunal by a
common order. Thereafter, the Superintendent
issued a communication to the assessee demanding
interest under Section 11AB of the Central Excise
Act, 1944 (‘CEA’). Further, the Superintendent
contended that the liability to pay interest was
automatic and that even if interest was not
demanded in the SCN or O-i-O, it could be
demanded at any point of time.
It is pertinent to note that Section 11AA of the CEA
and Section 11AB of the CEA were amended with
effect from 11 May 2001, diluting the erstwhile
distinction i.e.:
a) cases where there has been no levy or no
payment or short levy or short payment or
erroneous refund in the normal course (Section
11AA of the CEA) and
b) cases where there has been no levy or no
payment or short levy or short payment or
erroneous refund due to fraud, collusion, wilful
misstatement or the suppression of facts
(Section 11AB of the CEA).
The assessee filed four petitions to the Tribunal
against the above contention of the
Superintendent, which were rejected, and hence the
questions that arose for consideration before the
Madras High Court were:
i. Whether the demand for interest made after
the issue of an O-i-O and the confirmation of
the same by the appellate authority was in
tune with the provisions of Section 11AB of the
CEA
ii. Whether the Department was entitled to take
advantage of the amendment brought forth to
Section 11AB the CEA with effect from 11 May
2001 in relation to SCNs that emanated from
before the said date
The Hon’ble High Court conducted a careful
analysis of the provisions of Section 11A, Section
11AA and Section 11AB of the CEA as they existed
before and after the amendment of 11 May 2001
and observed the clear distinction between the two
categories of cases that existed in the provisions
prior to the amendment, as elucidated above.
The Hon’ble High Court, referring to the erstwhile
provisions, observed that if the case fell under the
first category where there was no allegation of
fraud, collusion, etc., interest became payable only
under Section 11AA, and only if no payment was
made within three months of the determination
under Section 11A(2). Therefore, the statute did not
make the liability to pay interest as automatic after
a determination under Section 11A(2) of the CEA. It
was only in the second category of cases under
Section 11A(2) where there was not only a
determination of levy, but also a finding of fraud,
collusion, etc. that the statute imposed a liability
under Section 11AB. This is why the date of
commencement of the liability to pay interest was
the date of the original liability and not the date of
the determination under Section 11AB.
The Hon’ble High Court further observed that after
the amendment, the liability to pay interest became
common for both categories of cases and a
distinction was retained only in respect of the
minimum ratio of interest and the date of
commencement of liability post 11 May 2001.

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It was held that in the two cases for which the SCNs
were issued prior to 11 May 2001, there was no
allegation of fraud, collusion, misrepresentation,
etc. and that they were not covered by the
amendment. Hence, the questions of law in respect
of the appeals arising out of these orders in relation
to the interest claim were answered in favour of the
assessee.
The other two appeals arising out of the O-i-O,
which were related to the SCNs exactly dated 11
May 2001, were dismissed.
Dhruva Comments:
The above ruling provides relief to assessees where
the Revenue seeks to levy interest by invoking
provisions that came into effect after the issuance
of the SCN.
M/s Archana Spinners Ltd. vs The Deputy
Commissioner of Central Excise and Others
[2016 (4) TMI 795 MADRAS HIGH COURT]
Notification
Revision of formula to compute reversal under
clause (i) of Rule 6 (3) of Cenvat Credit Rules,
2004 (‘CCR’); Rule 7B of CCR amended.
In the recent Budget, Rule 6(3) of the CCR was
amended w.e.f. April 1, 2016 to provide that in a
scenario where a manufacturer who manufactures
two classes of goods, namely non-exempted goods
and exempted goods, or a provider of output
services who provides both non-exempted services
and exempted services, the manufacturer or service
provider has the following options:
(i) Pay an amount equal to 6% of value of the
exempted goods and 7% of the value of the
exempted services subject to a maximum of
the total credit available in the account of the
assessee at the end of the period to which the
payment relates; or
(ii) Pay an amount as determined under Rule
6(3A).
Vide the subject Notification 23/2016 – CE (N.T.)
dated April 1, 2016, reversal/payment as prescribed
under clause (i) of Rule 6(3) of the CCR is now
restricted to a maximum of the sum total of the
opening balance of the credit of input and input
services available at the beginning of the period to
which the payment relates and the credit of input
and input services taken during that period.
The words "documents specified under rule 9," in
Rule 7B(1) of the CCR have been substituted for
“invoices, issued in terms of the provisions of the
Central Excise Rules, 2002,", thereby removing
redundancy.
Dhruva Comments:
The above substitution in Rule 6(3) of the CCR is in
line with the TRU Circular dated 29 February 2016.
The maximum limit is so prescribed to ensure that
the amount to be paid does not exceed the total
credit taken. It is interesting to note that under the
current format of E.R-1 there is no bifurcation
available in the opening balance of CENVAT credit
with regard to input and capital goods. Similarly,
under the ST-3 return, there is no division available
in the opening balance of CENVAT credit with
regard to input goods, input services and capital
goods. In other words, the opening balance as
portrayed under the ER-1/ST-3 return is a pool of
CENVAT credit, from among which it may not be
possible to identify the CENVAT credit pertaining to
input goods, input services or capital goods.
Accordingly, the assessee may be required to
manually segregate and quantify the amount of
input goods and input services forming part of the
opening balance of the CENVAT credit pool.
[Notification No. 23/2016-Central Excise (N.T.)
dated 1 April 2016]

11 | P a g e
CUSTOMS
Case Laws
Provisional release of goods to person other
than the owner
The issue before the Kerala High Court in the
present writ petition was whether the petitioner is
entitled to provisional release of goods, pending
adjudication, even though he was not the owner of
the goods. The High Court had on earlier occasion
directed the Customs authorities to provisionally
release the goods. Thereafter, based on an
investigation the Customs authorities took a stand
that the petitioner was not the owner of the goods
and therefore, the goods could not be released to
him.
The Court observed that if in terms of Section 125
goods could be released to a person other than the
owner then there should be no impediment in
releasing the goods to such a person even under
Section 110A. The High Court followed the view of
the Apex Court in UOI v/s. Sampat Raj Dugar and
Another wherein it was held that when goods are
imported at the instance of a licensee he shall be
deemed to be the owner of such goods till they are
cleared through customs. The Court held that
misuse of IEC may be brought to the notice of the
DGFT however the same cannot be a reason to
withhold release of goods under Section 110A. The
Court also rejected the Customs stand that by using
the IEC issued by the DGFT, the petitioner is
bringing goods of others and the same is not a
violation under Customs Act and observed that if
stand the Department is accepted, any importer of
the goods can escape from the liability by shifting
the onus to the owner of the goods.
Dhruva Comments:
Import transactions where the owner of the goods
and importer are two different persons are very
common in trade. Practically, the importer is de
facto considered as owner till the time the goods
are cleared from customs. The High Court’s
judgement puts a rest to any disputes which the
Customs authorities may raise to withhold
provisional release of goods to the importer on
grounds that the importer is not the owner of the
goods.
R. Mohandas, Proprietor, M/s. Pushpa Telecom
v/s. Commissioner of Customs, Customs House,
Cochin and Others
[W.P. (C) Nos. 24074/2015 and 39096/2015]
Non-compliance with mandatory pre-deposit
provisions would result in dismissal of appeal
In the instant case, the assessee had imported
certain equipment’s wherein the software was
embedded in the equipment. The assesse
deliberately bifurcated the value of the hardware
and software in order to evade Customs duty. The
CESTAT directed the assesse to deposit certain
amount of Customs duty, interest and penalty as
pre-deposit. The assessee preferred an appeal
against the said order wherein the assessee
contested that the CESTAT did not consider the
financial hardship faced by the assessee for making
the pre-deposit. Further, the assesse also
contended that failure to pay the pre-deposit would
not result in dismissal of appeal filed before the
CESTAT.
The High Court (HC) observed that the two
expressions used in Section 129E of the Customs
Act, 1962 (CA, 1962) are undue hardship to assessee
and safeguard the interest of revenue. While
considering the application for seeking waiver of
pre-deposit these twin requirements should be kept
in view. Also, the HC has laid down the following
principles that should be borne in mind while
considering stay applications:
 Stay applications should be disposed keeping
in mind the consequences to be faced by the
assesse to deposit full or part demand;
 Interim orders cannot be issued merely because
prima facie case is shown;
 The balance of convenience must be clearly in
favour of making an interim order;

12 | P a g e
 Twin consideration of undue hardship and
safeguarding interest of revenue to be
considered;
 If full or partial stay is granted conditions be
imposed to safeguard the interest of revenue
Further, the HC also observed that although Section
129 of CA, 1962 (prior to amendment made in
August 2014) did not specifically provide for
rejection of appeal for non- deposit of duty or
penalty, yet it is obligatory on the part of the
assesse to deposit the duty or penalty failing which
the Tribunal has the right to reject the pending
appeal.
Dhruva Comments:
Erstwhile proviso to Section 129 of the CA, 1962
provides that when the pre-deposit of duty or
penalty causes undue hardship to the assesse, the
appellate authority may dispense with such deposit
unconditionally or subject to certain conditions. The
HC order lays down certain principles which needs
to be followed by the appellate authorities while
disposing stay applications. The said principles
should be kept in mind by the assessee while
praying for waiver / reduction of pre-deposit
amount.
B. Hima Bindu vs. Commissioner, Customs, CE
and Service Tax, Hyderabad II Commissionerate
[TS-127-HC-2016(AP)-CUST]
FOREIGN TRADE POLICY
Case Laws
Refund of CST on purchases by an EOU from
another EOU be allowed though Appendix 14.I-I
only allows for refund on purchases from a DTA
unit
Appellant, being a 100% Export Oriented Unit
(EOU), filed a refund claim of Central Sales Tax (CST)
paid on goods procured from other EOUs and units
located in the Domestic Tariff Area (DTA). However,
the said refund on goods procured from another
EOU was denied on the premise that the Appendix
14.I-I to Foreign Trade Policy (FTP) 2009-14 did not
provide for reimbursement of CST paid on goods
supplied from one EOU to another EOU.
Accordingly, the Appellant filed a writ petition for
grant of the said refund on the ground that Para
6.11 of the FTP provides the benefit of
reimbursement of CST as long as the goods are
manufactured in India and that the Appendix 14.I-I
is solely a procedural provision for effectuating
rights in the Policy.
Madras High Court stated that the Appendix should
be meant for reaching the objective and definitely
not meant for defeating a person from getting the
fruits of the substantive right provided in the FTP. If
the procedural norms are in conflict with the FTP,
then the FTP will prevail and the procedural norms,
to the extent they are in conflict, are liable to be
held bad in law. Accordingly, the High Court
directed the Development Commissioner to grant
the refund to Appellant.
M/s Hospira Health Care India Pvt Ltd vs.
Development Commissioner, MEPZ Special
Economic Zone & HEOUs, DGFT and Others
[2016 (4) TMI 185-Madras High Court-Customs]
Notifications, Public Notices and Trade Notices
Definition of ‘e-commerce’ introduced
The definition of ‘e-commerce’ has been introduced
vide Para 9.17A in FTP 2015-20, which reads as
under:
“e-commerce means buying and selling of goods
and services, including digital products, conducted
over digital and electronic network. For the
purposes of Merchandise Exports from India
Scheme (MEIS), e-commerce shall mean the export
of goods hosted on a website accessible through
the internet to a purchaser. While the dispatch of
goods shall be made through courier or postal
mode, as specified under the MEIS, the payment for

13 | P a g e
goods purchased on an e-commerce platform shall
be done through international credit/debit cards
and as per the Reserve Bank of India Circular
(RBI/2015-16/185) [A.P. (DIR Series) Circular No.16
dated September 24, 2015] as amended from time
to time.”
Dhruva Comments:
The Notification has been introduced in pursuance
of extension of the MEIS benefit to goods exported
through e-commerce vide Para 3.05 of the FTP
2015-20. In view of this, the benefit of MEIS would
be available only if the payment for goods
purchased on an e-commerce platform is done
through international credit/debit cards.
Notification No.2/2015-16 dated 11 April 2016
A list of services introduced for which payment
received in Rupee terms can be counted for
export obligation under EPCG
A new Appendix 5D has been notified for the list of
services, payment for which in Rupee terms can be
counted for discharging export obligation (EO)
under Export Promotional Capital Goods (EPCG)
Scheme. The services provided in respect of ‘vessel
related charges’ for coastal and inland vessels and
‘cargo related charges’ in respect of coastal cargo,
coastal containers and coastal empty containers
would not be counted for discharge of EO under
EPCG Scheme.
Dhruva Comments:
The aforesaid benefit was also available under the
erstwhile Policy, however, there was no specification
on the list of services which were entitled to the
benefit. The aforesaid Notification now specifically
restricts the benefit to the specified services.
Further, as services towards coastal cargo, coastal
containers and coastal empty containers would not
amount to exports, the same has been specifically
excluded.
Notification No.6/2015-16 dated 3 May 2016
and Public Notice No.4/2015-20 dated 3 May
2016
A list of services under SEIS introduced where
payment received in Indian Rupees can be
treated as receipt in deemed foreign exchange
Appendix 3E has been notified prescribing for a list
of services, where payments which have been
received in foreign exchange or otherwise received
in foreign exchange, but paid in Indian Rupees
including through agents in India out of the
amount remittable to the overseas principal or out
of remittances to be sent by the overseas buyer, for
the services rendered in Customs Notified Areas to
a foreign liner (or procured by a foreign entity in
case of services included in rental of vessels with
crew) would be considered as deemed to be
received in foreign exchange under Services Exports
From India Scheme (SEIS) as per Reserve Bank of
India’s (RBI) guidelines.
Services provided in respect of ‘vessel related
charges for coastal and inland vessels’ and ‘cargo
related charges’ in respect of coastal cargo, coastal
containers and coastal empty containers are
excluded.
Dhruva Comments:
The aforesaid public notice prescribes for the list of
services which would be eligible to SEIS despite the
fact that such services do not directly earn foreign
exchange. It may be noted that under the erstwhile
Policy, DGFT officials have been raising objection on
allowing the benefit of SFIS on the basis that there
is no specific letter by RBI stating that the amount
received for the particular service provided by the
applicant should be considered as deemed to be
received in foreign exchange. Further, even RBI has
been refusing to issue letters providing list of
specific services which were to be considered as
being received in foreign exchange. The aforesaid
public notice has now provided a specific list of
such services.
Public Notice No.7/2015-2020 dated 4 May 2016

14 | P a g e
Key Contacts
Dinesh Kanabar, CEO
dinesh.kanabar@dhruvaadvisors.com
Ritesh Kanodia, Partner
ritesh.kanodia@dhruvaadvisors.com
Niraj Bagri, Partner
niraj.bagri@dhruvaadvisors.com
Srinath S, Associate Partner
srinath.s@dhruvaadvisors.com
Our offices
Mumbai
12th
Floor
Discovery of India Building (Nehru Centre)
Dr. Annie Besant Road
Worli, Mumbai 400 018
Tel: +91-22-6108 1000
Fax:+91-22-6108 1001
Bengaluru
Prestige Terraces
5/1, Union Street
Infantry Road
Bangalore 560001
Tel: +91-80-4660 2500
Fax: +91-80-4660 2501
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B3/3rd Floor, Safal Profitaire, Prahladnagar,
Corporate Road,
Opp. Auda Garden, Ahmedabad 380 015.
Tel: +91-79-6134 3400
Fax: +91-79-6134 3434
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M G Road, Gurgaon, Haryana
Tel: + 91-124 6687000
Fax: + 91-124 6687001
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Singapore 048616
Tel: +65 6812 1600
About Dhruva Advisors LLP
Dhruva Advisors offers a wide range of services in the tax
and regulatory space to clients in India and around the
world
We are a cohesive team of tax professionals who are
focused on providing our clients with high-quality tax
and related services. With strong research and technical
skills coupled with extensive experience, we provide well-
thought out and strategic solutions to complex problems
Our professionals have advised on some of the largest
transactions in the world and have handled several of the
largest tax controversies in India. Our professionals also
have a strong track record of designing and
implementing pioneering solutions in several areas of
domestic and international tax
Dhruva has been recognised as tier 1 firm in
international tax review, world tax guide 2016 to
world’s leading tax firms
Dhruva has been recognised as tier 2 firm in
international tax review, world transfer pricing 2016
to world’s leading transfer pricing firms
Dhruva has been awarded Best Newcomer of the Year
2016 - ASIA by international tax review
This information contained herein is in summary form and is therefore intended for general guidance only. This publication is not intended
to address the circumstances of any particular individual or entity. No one should act on such information without appropriate professional
advice after a thorough examination of the particular situation. This publication is not a substitute for detailed research and opinion. Before
acting on any matters contained herein, reference should be made to subject matter experts and professional judgment needs to be
exercised. Dhruva Advisors LLP cannot accept any responsibility for loss occasioned to any person acting or refraining from action as a
result of any material in this publication. S

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